Earnings preview: Microsoft 1Q profit seen higher

Gains in Microsoft 1st-quarter profit expected as Surface, new company focus in spotlight

Associated Press

LOS ANGELES (AP) -- Microsoft releases its fiscal first-quarter results on Thursday after the market closes, the first time it will use new reporting segments to reflect its focus on becoming a devices and services company.

WHAT TO WATCH FOR: One of the key metrics Microsoft will break out for the first time will be revenue from its line of Surface tablets. The company began selling its own devices a year ago but booked a $900 million charge due to weak demand for its Surface RT. It also slashed the price to stimulate demand. Results for the product line will reveal how successful the company has been at manufacturing and marketing devices.

The new segments will also show how the software giant's new business model is working. Consumers had been paying for software like Office only when they upgraded their computers. Now Microsoft is charging an annual fee and consumers get upgrades more often, like through Office 365. The new model will likely cause a short-term revenue decline in that business, but the company expects to gain in the long term.

The reporting structure will also better separate reporting of the declining PC business from Microsoft's growing enterprise and cloud computing products and services such as Windows Azure.

WHY IT MATTERS: Microsoft's Windows operating system is still dominant in PCs. The latest version, Windows 8.1, attempts to fix some of the issues that caused Windows 8 to receive poor reviews after it was released last year. Although the operating system is an attempt to bridge the divide between PCs and tablets, PC sales continue to fall while Microsoft's share of the tablet market remains small.

The Redmond, Wash., company's fight to stay relevant to consumers will have an impact on how many people interact with technology.

Its fast-growing cloud computing services platform also makes it an important player supplying businesses and other organizations with information technology.

WHAT'S EXPECTED: Analysts polled by FactSet expect Microsoft to post earnings of 54 cents per share on revenue of $17.79 billion.

LAST YEAR'S QUARTER: The company posted earnings of 53 cents per share on revenue of $16 billion.

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